Optimal Networks with Accumulative Costs and Bidirectional Communication

Abstract

This paper is an extension of the approach of Larrosa and Tohmé (2003), in which the payoff function is modified by allowing information to flow in both directions. Costs continue to be paid by the agent who initiates the connection, so this asymmetry reveals changes in the final equilibrium topology. We find that several optimal topologies persist as Nash networks, but that a strict Nash network corresponds to the sequential line network with intermediate active nodes; that is, agents are placed in a line and, every other agent, they connect with the predecessor agent and with the subsequent agent. In this way, cost accumulation is interrupted and benefits are maximized.

24 pages